The study seeks to identify drivers of firm value in the start-up and entrepreneurial finance ecosystem.
In particular, we address these questions: How can these identifiable drivers be grouped and categorized? What approaches and views have practitioners been recorded as adopting? What are the emergent trends in terms of theoretical research? What are the dominant paradigms? What are the contextual factors which influence the various existing views? Do the characteristics of the firms play a more dominant role, or do those of the funders play the more dominant role?
To answer to these questions, we use a systematic literature review on 61 ranked peer-review articles and 32 grey articles. Each of these were clustered along lines of source, with peer-review articles clustered along lines of field of the journal of publication and grey articles clustered along lines of publication type, with a majority being industry reports.
Our main research findings are the following:
Without surprise, we find that the main valuation drivers are the following factors: entrepreneurial characteristics (experience, education) – investor characteristics – market conditions – deal conditions –. Via content-coding of the papers for these factors, substantial content divergences were detected between peer-review and grey literature, as well as among various fields of peer-review literature.
Essentially, papers published in economics journals give importance to deal conditions, while papers published in entrepreneurship journals lend dramatically more weight to entrepreneurial characteristics, with papers published in finance journals adopting a more balanced stance. Grey literature meanwhile, constructs start-up valuation almost entirely on the basis of entrepreneurial characteristics and market conditions.
To conclude, this study offers insights to practitioners and a new research avenue in terms of where further research can be undertaken.
Source: Berre, M., Le Pendeven, B., Wirtz, P., (2019), A Targeted Review of the Literature of Start-up Valuation Driving Factors, EU-SPRI conference paper presented in Turin on Sept. 24th